What Is a Mutual Fund and Its Structure to Get a Clear Understanding before Investment

From newspapers to social media platforms and from thousands of websites to varied other modes of marketing are flourishing with news about Mutual Funds and amazing offers for mutual fund investment. As far as mutual funds are concerned, they are the investment schemes – collecting money from people and invest in funds in diverse assets.

Through mutual funds, money that is collected from investors is invested in financial securities that may be in the form of:

• Shares
• Money Market Instruments (certificate of deposit and bonds)
• Equity
• Debt and money-market instruments

Depending on your requirement and type of investment plan that you choose, you can invest in mutual funds for short term, mid-term and for long-term too. It is equally important to know about the risk factors of the funds. Before start investment, you should consult with experts and get the right decisions to make some big profits.

What Are the Advantages of Mutual Funds?

One of the plus points of choosing mutual funds as your investment plan is that your investment is pooled with other investors – together to purchase a diversified set of stocks or bonds.

As soon as you start investing, you can start with a small amount of money. The small investment will allow you to instantly diversify into varied holdings as the fund has at this time.

You can buy the desired stocks – by investing your amount in each stock. In case, one stock doesn’t do well, your account could drop significantly in value. With mutual funds, you are free to invest in different companies.

In this way, if one stock doesn’t perform well, it won’t have any impact on your account. You should keep in mind that diversification is the main advantage to owning a mutual fund.

Type of Mutual Funds – Essential to Know About

Knowing about the type of mutual funds is equally important. It is divided into three main types – that include:

• Equity Funds – It is the right option to invest in stocks of diverse sizes and options. Some of them are classified as global – have the ability of investing in other nations or globally. Domestic stands for the specific nation. Not to mention the growth funds – invest in companies with expectations of higher growth rates in comparison to others.
• Fixed Income Funds – Such types of investment options are in bond-oriented investment. Corporate bonds and municipal bonds are in this category.
• Money Market Funds – It is the right investment plan that is known as high-quality and short-term debt instruments. It is all about the investment in liquid instruments – counted as safe for those who are looking for park surplus funds for immediate returns. It is also known as cash markets that may come with risks in terms of interest risk, re-investment risk and credit risks.

In addition to the aforementioned options, Index Funds, Balanced Funds, Income Funds, Fund of Funds and Specialty Funds are also other categories to know about.

How to Choose the Best Options in Mutual Funds – Know About Varied Types

For you convenience and to help you getting a clear understanding of the funds, we have come up with detailed information about the types of mutual funds that are based on varied parameters.

Structural Based Mutual Funds

Mutual funds that are based on structures include:

• Open-Ended Funds
• Close-Ended Funds
• Interval Funds
• Mutual Funds Based on Asset

Asset based mutual funds include – Equity Funds, Debt Funds, money market funds and balanced or hybrid funds.

Investment Objective Based Mutual Funds

You have some other options available and investment objective based mutual funds are one of them. It is divided into different categories like:

• Growth Funds
• Income Funds
• Liquid Funds
• Tax Saving Funds
• Capital Protection Funds
• Fixed Maturity Funds
• Pension Funds

Mutual Funds That Are Based on Specialty

Apart from the aforementioned options, you can also choose the best plans that are based on specialty. Some of them are given below:

• Sector Funds – It is the right way to invest in a particular sector of market like infrastructure. Not to mention the returns that is based on the performance of the sector.
• Index Funds – You can invest in instruments – representing a particular index on an exchange. You can check the returns of the index.
• Emerging Market Funds – You have an option of investment in developing countries – mainly those nations showing the good prospect of the future. They do come with higher risk as a result of the dynamic political and economic situations of the nation.

Apart from the aforementioned options, you have also some other investment options in this category that include international Funds, Fund of Funds, Global Funds, Real Estate Funds, Commodity Focused stock funds and market neutral funds. This type of mutual funds investment has some other options too like inverse or leveraged funds, asset allocation funds, gift funds, exchange traded funds.

Are There Other Mutual Fund Options Available?

You have some other options too that are based on the risk like low risk, medium risk, and high risk.

• Low risk mutual funds are the investment options made by those who don’t want any risk in returns. Debt market is the right option in this category. You should keep in mind that returns are also low.
• Medium risk mutual funds are investment options with a medium amount of risk. If you are willing to take some risk with the investment and want to get higher returns, it is the right option for you to invest.
• High risk mutual fund investment is for those who are willing to take higher risk with the money and looking to build their wealth. It is the right option to get higher returns too.

In India, mutual funds are created as trusts and the below-mentioned persons are involved in the process that includes sponsor, board of trustees, Fund house or asset management company, and custodian.

SIP Investment or Systematic Investment Plan

It is an investment tool – allowing you to invest a fixed amount at regular intervals in a mutual fund scheme. It works by investing a fixed amount at a defined frequency. You as an investor don’t need to time the market. In this way, you can invest in hassle-free way.

How to Choose the Right Mutual Funds and Steps to Invest in Right Way

Choosing the right mutual funds is one of the crucial decisions to make – mainly with more options are available in the market. Before choosing any one, you should keep in mind your goals and understand your own needs. If you expect higher returns, you should choose higher risk funds. For those who don’t want any practical with the investment, low risk funds are the best options. Don’t forget to note that mutual funds come with a factor of risk – no matter how small or big it is.

It is crucial for you to read the policy documents carefully before investment. You should read the documents to ensure that you have understood exactly what you have invested in.

Are There Options for Tax Saving Mutual Funds?

You have some better options of tax saving mutual funds to choose as some of them are exempt to taxes. It is equally important to understand that no dividend distribution tax is applicable on Equity Funds. These investment options aren’t classified as wealth at the time of calculating wealth tax. Long term investments are taxed at a lower rate in comparison to short term options.

Step-By-Step Guide to Invest in Mutual Funds

Mutual Fund Investment is subject to market risk and you should real all documents carefully before start investing your hard-earned money. Here are a few simple steps that will ease the process of mutual fund investment.

• First of all, you should identify with the risk capacity and risk tolerance within you. The amount of risk you can take is referred to as risk profiting.
• The next crucial step is asset allocation. As soon as you identify your risk profile, you are supposed to look to divide your money amid diverse asset options. Your asset share needs to have a blend of both equity and debt instruments – mainly to compensate for the risks.
• The third step is to identify the funds to invest in each asset class. You can also compare mutual funds on the basis of investment motives and performance in the last months.
• You should also decide on the mutual funds schemes in which you are going to invest. You should also make the application online or offline.
• Not to mention the diversification of your investments and follow-ups that are equally important to get the best out of your investment.

You should also identify your purpose of investing – that is counted as the first step for investing in mutual funds. Don’t forget to define your investment goals like buying a house, education of child, wedding, retirement and other plans.

Don’t forget to get KYC or Know Your Customer Requirements done properly. Complying with KYC Guidelines is important. You as an investor need to submit the copies of your documents like PAN Card, Residency Proof, Age proof and others required by the concerning agency.

You should know about the schemes available and make sure you have done your paperwork by knowing about the market to understand the different types of schemes available. As soon as you choose the right plan, you should adapt to your investment objectives, your risk, affordability and some other points. Don’t forget to remember that mutual funds are subject to market risk. If you choose the scheme of high returns, you may be at high risk of losing your investment.

A bank account is required to make a mutual fund investment as the companies that are involved in providing you such investment options may ask you for the online or physical copies of cancelled cheque leaf with IFSC code or MICR of the bank.

Different Ways to Invest in Mutual Funds

There are different ways of mutual funds investment. Knowing about each one is crucial decision to make. It will help you in keeping your returns secure and risk-free.

Offline Investment Directly with the Fund House is one such option. You can invest in schemes of a mutual fund by reaching the nearby branch office of the selected company. Here, you need to ensure – carrying a copy of the documents like Address Proof, Identity Proof, cancelled cheque and Passport Size Photographs.

Offline Investment through a broker is another option of mutual funds investments. They are the professionals to help through the entire process of investment. He/she is the right person to provide you with full information you need to make your investment – mainly features of schemes and documents required.

Online Options of Investment is another option. There are varied top websites offering complete assistance for online investment. For this, E-KYC is also required that you can do by entering Aadhar Number and PAN.

Now-a-days, varied recognized investment platforms and banks have come up with apps that are sure to help you get the right options for investment. You have to choose the right app and start complting the steps.

What Are the Best Mutual Funds Investment Options?

There are different mutual funds investment options that you can choose according to your choice and requirement. By getting proper information and knowledge, you can do investment in the right one and get amazing benefits with easy return options. Here is the list of some of the best mutual funds:

• Axis Bank Mutual Fund, HDFC Mutual Fund and Quantum Mutual Fund
• DSP Mutual Fund, Edelweiss Mutual Fund and SBI Mutual Fund
• L&T Mutual Fund, Mirae Asset Mutual Fund and Baroda Pioneer Mutual Fund
• Birla Sunlife Mutual Fund, Motilal Oswal Mutual Fund and ICICI Prudential Mutual Fund
• Kotak Mutual Fund, Tata Mutual Fund and UTI Mutual Fund
• LIC Mutual Fund, HSBC Mutual Fund and JM Financial Mutual Fund
• ING Vysya Mutual Fund, IDFC Mutual Fund and Taurus Mutual Fund
• Bharti AXA Mutual Fund, Morgan Stanley Mutual Fund and Franklin Templeton Mutual Fund

In addition to the aforementioned names, you can also choose Canara Robeco Mutual Fund, Escorts Mutual Fund, Principal Mutual Fund, Religare Mutual Fund, Sahara Mutual Fund, Nippon India Mutual Fund, Sundaram Mutual Fund, Deutsche Mutual Fund, Fidelity Mutual Fund, Pramerica Mutual Fund and BNP Paribas Mutual Fund.

You are advised to consult with experts before start investment. If you can go through the details, you will be able to take the right decision.